MARKET WRAPS
Watch For:
No major economic data scheduled; updates from Grammer, Commerzbank, Wienerberger
Opening Call:
Europe is set for a mildly-positive start despite worries that a lockdown in Shanghai may hit global supply chains. Stocks in Asia were mixed, with the mood slightly downbeat; the dollar and Treasury yields gained; oil lost over 3% and gold edged lower.
Equities:
European shares should open slightly higher Monday with the focus remaining on Ukraine.
In Asia, shares were mixed, with sentiment "a bit fragile amid Shanghai Covid concerns," according to SPI Asset Management.
"Asia markets are opening soft on the back of Covid concerns in Shanghai as the city goes into semi-lockdown from today, with potential disruption across tech/EV supply chains," wrote Stephen Innes, Managing Partner at SPI.
The week ahead offers an abundance of economic data that includes the latest eurozone inflation figures and the U.S. jobs report.
Stocks to Watch:
It's too early to be confident on a turnaround at Rio Tinto with operational and strategic issues ongoing, UBS said. Still, the bank upgraded Rio's Australian stock to neutral from sell, and lifted its target to A$104/share from A$90/share, citing a better-than-anticipated outlook for core product iron ore.
"The disruption of iron ore and steel exports from Ukraine and Russia, combined with stronger-than-expected data from China in Jan/Feb with the prospect of further easing to achieve the [National People's Congress's] ambitious growth target, improves the risk/reward for the iron ore price over the next 12 months and in turn for Rio," UBS said.
Forex:
The dollar was firmer in Asia with the USD Index pushing above 99.00.
An increasingly hawkish Fed and higher yields has had little effect on the dollar, Jonathan Petersen at Capital Economics said, possibly because of the broad-based nature of the tightening cycle. Despite that trend, Petersen still thinks the dollar could grind higher as commodity prices fall back from their highs and long-term yield gaps widen.
"[This] week's employment report and business and consumer surveys from the euro-zone and the U.S. will shed more light on the war's relative impact on activity, and may prove the next catalyst for a rally in the dollar."
Bank of America said it remains bullish the dollar over the coming months but is considering signposts for a secular peak, which it views as likely in the third quarter with a more meaningful reversal in 2023.
"These include U.S. resilience to rate hikes, the pace of official reserve diversification, FX hedge ratios of large institutions, China growth recovery and policy intervention."
BofA said to stay bearish the pound and yen: "BoE hiking from a position of weakness while verbal intervention against JPY may not be effective."
Bonds:
Treasury yields continued to rise in Asia, hitting highs not seen since 2019, as the Fed turns more hawkish and investors worry about rampant inflation and potential economic contraction.
However, for all the worry about the message the bond market appears to be saying about the economic outlook, a key spread in the Treasury market may signal the anxiety about a downturn is misplaced.
The three month to 10-year Treasury note spread, which some Fed economists say is the best predictor of a recession, is widening rather than getting narrower. That spread is now at around 180 basis points, has been widening since the start of the month, and is at its biggest difference since mid-March 2017. The message of this move is market participants see declining risk of a recession.
Read: Government Bonds on Track for Worst Year Since the Marshall Plan Enacted
Other News:
Investors breathed a sigh of relief last week after the Russian government made a $117 million interest payment on its foreign debt. But a much bigger payment comes due April 4--to the tune of $2.2 billion--and creditors are far less optimistic Russia will pony up this time.
"The last payment was a small investment in credibility, but when Russia has to start writing billion dollar checks it's a different calculation, " said Jay Newman, former Elliott Management portfolio manager. "I don't think it's realistic that Russia comes up with the $2.2 billion.
Read more here.
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The Bank of Japan said Monday that it offered to buy an unlimited amount of 10-year Japanese government bonds at a fixed rate at 0.25%. The announcement was made as the yield on benchmark 10-year JGBs approached the upper limit of the bank's target range of 0.25%.
Energy:
Oil futures were lower in Asia after hitting strong technical resistance on charts.
Brent has declined after encountering technical resistance at the $118/bbl level last week, which will remain a key level to overcome ahead, IG said.
Several catalysts to support further upside on crude prices remain intact, which includes a deadlock in the Iran nuclear deal and any escalation in attacks on Saudi Arabia's oil facilities, IG added.
Reports of the attack renewed concerns Friday over global crude supplies and helped boost oil futures, which gained nearly 12% for the week.
Read: Why OPEC+ Will Likely Stick to its Output Plan
Metals:
Gold was weaker, weighed by higher Treasury yields and a stronger dollar.
However, with war rather than peace looking more possible for the foreseeable future, gold remains well-supported on dips, SPI Asset Management said. And with oil prices more likely to stay higher for longer, inflation and the real possibility of stagflation hitting the global economy also continues to support gold.
Gold ended 0.4% lower Friday, but tallied a gain of 1.3% for the week.
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Aluminum prices were lower too and could remain volatile amid ongoing supply disruptions, Goldman Sachs said. It noted supplies are tight, with stockpiles at around the same level that they started the year.
The Australian government recently decided to ban the export of alumina to Russia, which poses further risks to aluminum supply, Goldman Sachs said.
Read: Aluminum Makers Seek Old Cans, Shredded Cars to Fuel New Plants
TODAY'S TOP HEADLINES
Ukraine Seeks to Exploit Shift in Russia's Military Strategy
KYIV, Ukraine-Ukrainian forces are seeking to roll back Russian gains as Moscow shifts its focus to controlling a swath of the country's south and east.
Ukrainian forces said Sunday they drove Russian troops out of Trostyanets, in the northeast near the Russian border, potentially opening a road to the provincial capital of Sumy, which is encircled by the Russians.
Oil Prices Stay High as Russian Crude Shortage Hits Market
The de facto buyers' strike on Russian crude that began a month ago propelled oil prices to their highest levels in years. Now the real effects are starting to create a second wave of impact on oil markets, disrupting Russian exports and threatening further price increases.
Major energy companies and commodity-trading houses balked at buying crude oil from Russia in the days following the invasion of Ukraine. Banks also stopped financing these trades, shippers refused to load cargoes and insurers stopped covering them, fearful of running afoul of sanctions or upsetting company stakeholders.
The Riskiest Bets in the Stock Market Are the Most Popular
When technology stocks tumbled for a fourth straight day in January, Evan Fetter, a 25-year-old in the U.S. military, saw an opportunity to swing for the fences.
He poured $15,000 into the ProShares UltraPro QQQ, an exchange-traded product that is designed to triple the daily return of the Nasdaq-100 index, bidding for what he called a "once-in-a-lifetime gain."
Natural-Gas Industry Gets Boost as Biden Shifts Stance
President Biden's pledge to boost U.S. liquefied natural-gas exports to Europe marks a further retreat from his hard-line stance against fossil fuels, sending share prices surging for natural-gas companies.
The president, who campaigned on a platform to transition the U.S. to cleaner energy, said Friday the U.S. is working to ship 50 billion cubic meters of LNG to Europe annually through at least 2030 to help the continent wean itself from dependence on Russian supplies.
A Middle East Geopolitical Realignment Accelerates to Confront and Contain Iran
New diplomatic and security ties are reshaping the Middle East as former enemies seek unity in containing Iran, the U.S. rethinks its security role in the region, and Russia and China seek to exploit openings left by Washington.
A historic summit starting Sunday in Sde Boker, Israel, illustrates the changing alignments, bringing Arab, Israeli and U.S. officials together for the first time on Israeli soil for talks on expanding their budding partnership.
Putin Stokes Nuclear Fears With Atomic Weapons Warnings
When Russia unveiled previously secret details of its nuclear-weapons doctrine for the first time in 2020, it confirmed something U.S. war planners had long suspected: Moscow would be willing to use atomic arms to keep from losing a conventional war.
Since Russian President Vladimir Putin invaded Ukraine last month, he has repeatedly raised the specter of nuclear war, invoking his country's atomic arsenal in an effort to deter the U.S. and the North Atlantic Treaty Organization from getting involved in the conflict.
Volkswagen Prepares for a Deglobalized World
BERLIN-For years, Volkswagen AG thrived as a global company, building and selling its cars all around the world. But as war, health scares and trade disputes roll back decades of globalization, the German giant is changing its manufacturing approaches to adapt.
VW's resilience effort includes strategies to shore up access to components and raw materials and shorten supply chains to make its regional businesses less dependent on faraway suppliers, according to senior executives at the company.
Write to paul.larkins@dowjones.com
Expected Major Events for Monday
04:30/NED: Jan International trade
(MORE TO FOLLOW) Dow Jones Newswires
03-28-22 0038ET
